£800,000 Fundraising, Notice of EGM, Appointment of Consultant, Issue of Warrants and Capitalisation of Fees

4th December 2014

CloudTag (AIM: CTAG), which develops personal performance monitoring for the professional sports and consumer wellbeing markets, is pleased to announce that it has concluded a fundraising of £800,000 before expenses with new investors. The new funds will be used to complete the Company’s development of its proprietary wearable technology, fund the release of the cloud supported version of the mobile app, MyCloudtag, and for general working capital purposes.

In connection with the fundraising, the Company has today published a circular to shareholders convening an extraordinary general meeting to be held at the offices of Fladgate LLP at 16 Great Queen Street, London WC2B 5DG at 11.00 a.m. on 23 December 2014, further details of which are set out below. The circular is also available on the Company’s website at www.cloudtag.com. Defined terms used in this announcement have the same meaning as those as set out in the circular.

Andy Jackson, CEO, commented: “I am delighted to announce this fundraising which will enable us to complete production models of our hardware device, which we will then take to market with the intention to move CloudTag into mass manufacture and full commercialisation.”

Fundraising

The Company has entered into subscription agreements with certain investors in respect of the issue of, in aggregate, £800,000 unsecured loan notes due in 2015 (“Loan Notes”) to such investors (“Fundraising”). Under the terms of the Fundraising, the Loan Notes will become convertible into Ordinary Shares if, and only if, the Company obtains authority from its shareholders to dis-apply the pre-emption rights in the Company’s articles of association (“Articles”) so as to allow it to issue sufficient Ordinary Shares to satisfy the exercise of all such conversion rights in full.

The Board has concluded that the Fundraising is necessary in order to allow the Company to meet its plans for the growth and development of its business over the coming months, in particular the development and manufacture of products with a view to launching the first device in early 2015 and making it available for general sale in the UK and US markets in Q2 2015.

Pursuant to the Fundraising, the Loan Notes have been issued to investors in exchange for the payment of subscription monies totalling, in aggregate, £800,000. Pursuant to the terms of the loan note instrument executed by the Company, an additional £700,000 of Loan Notes may be issued by the Company on or before 30 June 2015.

If Shareholders approve Resolution 1 at the EGM, the Loan Notes will become convertible at 100% of their principal amount plus accrued interest into new ordinary shares of 0.1 pence each in the capital of the Company (“Ordinary Shares”) either:

(i) at the holder’s option at a conversion price which is fixed at 3.75 pence of indebtedness per one Ordinary Share, representing an effective discountof 3.23% to the closing mid-market price of an Ordinary Share on 3 December 2014 (being 3.875 pence), the last business day prior to the publication of this document; or

(ii) at the Company’s option at a conversion price which is fixed at 3.75 pence of indebtedness per 1.5 Ordinary Shares (equivalent to 2.5 pence of indebtedness per one Ordinary Share), representing an effective discountof 35.48% to the closing mid-market price of Ordinary Shares on 3 December 2014 (being 3.875 pence), the last business day prior to the publication of this document.

The Loan Notes carry nil interest for the first six months following issue and thereafter carry interest at a rate of 8% per annum beginning on the business day after the six-month anniversary of issue. The Loan Notes are unsecured, are not listed and are transferable.

Unless previously redeemed, converted or cancelled, the Loan Notes will be redeemable at any time at the Company’s option at 100% of their principal amount plus accrued interest. Unless previously redeemed, converted or cancelled (including if Resolution 1 is not passed), the Loan Notes will mature and become repayable at 100% of their principal amount plus accrued interest on 3 December 2015.

Working Capital and Additional Fundraising

The projected use of funds raised pursuant to the Fundraising is set out in the following table:

Hardware development

Costs to complete the production models of the hardware device, patch and packaging.

£580,000

Software development

Costs to complete the next release of the app with cloud infrastructure & integration with the production samples

£130,000

General working capital

£90,000

Total

£800,000

Subject to completion of the Fundraising, the Board believes that the Company will have sufficient capital to launch the cloud version of the app and to complete the development stage of the device, comprising of pre-mass production test models of the hardware device, patch and packaging.

However, once the product is capable of being launched, which is expected in Q2 2015, the Company will require significant additional working capital (by completion of the Additional Fundraising) to finance manufacturing of the product and an increase in support, sales and marketing personnel. Accordingly, the Board is seeking the approval of Resolution 2 at the EGM to authorise the Company to dis-apply the pre-emption rights in the Articles in respect of the allotment and issue of further Ordinary Shares having a nominal valueof up to £80,000.

Whilst the Board anticipates that obtaining the production samples referred to above will enable the Company to access alternative forms of funding including, but not limited to, trade factoring, debt and mezzanine finance, should none of these forms of funding be available, or available on acceptable terms or to the extent required, the Board believes that it would be prudent to have the ability to issue further equity on a non-pre-emptive basis so as to avoid any delay in launching the product.

Notwithstanding the Fundraising, failure to secure the Additional Fundraising in a timely manner would result in a delay to the project and the release of the device to the market and would adversely impact the Company’s working capital position.

Appointment of Amit Ben-Haim as Consultant

The Board has appointed Amit Ben-Haim as a consultant to the Company. Amit has a proven track record as a successful entrepreneur establishing, leading and expanding companies through to trade sale exits as co-founder, executive and non-executive director. In 1993, he co-founded Biosense Inc., a medical devices company which was sold to Dow Jones-listed Johnson & Johnson in 1997 for $485 million. In 1996, he co-established Impulse Dynamics Inc., another medical devices company, which ultimately licensed its cardiac contractility technology to NYSE-listed Guidant Corporation (a group company of Boston Scientific) and in 1998 he was one of several founders of Odigo Inc., a communications company specialising in instant messaging platforms (for example Blackberry’s BBM) which was sold in 2000 to NASDAQ-listed Comverse Inc. Amit’s experience extends across various industries including aviation (private and commercial), infrastructure, corporate finance and wealth management.

Amit’s brief is to make introductions for the Company in the finance, technology and consumer health and wellbeing sectors and to assist the Company in raising equity and other capital to fund the Company’s activities.

Under the terms of his consultancy agreement, Amit will receive fees of £80,000 per annum, comprising: (i) £44,000 per annum payable quarterly in arrears to be settled through the issue of Ordinary Shares issued at the prevailing market price set as the average of the closing mid-market price on the five dealing days prior to the end of each quarter; and (ii) £36,000 per annum payable monthly in arrears to be settled in cash.

Golden Bridge Services Limited

The Board has been introduced to Golden Bridge Services Limited (“GBSL”), a financial investment and services company incorporated in the Cayman Islands which believes that there is an opportunity for it to introduce investors and/or a strategic partner to the Company. Accordingly, the Company has granted to GBSL conditional warrants to subscribe for up to 22,000,000 new Ordinary Shares at a subscription price of 4.25p per share (“Warrant Shares”). If the warrant is exercised in full, the Warrant Shares would represent 12.5%of the current issued share capital as enlarged by their issue. The grant of the warrants is subject to shareholder approval of Resolution 3 at the EGM and the satisfaction by the warrant holder of performance conditions. These conditions are either (i) the introduction by GBSL, within 150 days, of one or more investor(s) investing together not less than £500,000 in the Company, such new investment being on equal or better terms to the Company than the convertible Loan Note issue; or (ii) the introduction of a strategic partner; that means a strategic partner concluding a transaction, acquisition or collaboration with the Company, such party being a hardware, software or sports and fitness company which has mutual business interests with the Company’s business operations and which brings either significant strategic advantages to the Company or which has a platform (being any, some or all of a website, app or e-commerce platform) with not less than 30 million unique users. To date, no introductions have been made and no discussions have taken place between the Board and any potential new investor(s) or strategic partner.

Capitalisation of fees

The Company intends to issue 6,666,667 Ordinary Shares to Amit Ben-Haim by way of capitalisation of £250,000 of fees and commissions owing to him in relation to the Fundraising at an issue price of 3.75 pence per share. The Board appreciates that the fees and commissions are substantial. The Company is, however, at an early stage; as such traditional avenues of financing are either not open to it on acceptable terms or at all. The Company was approached by Amit with a view to him introducing investors, which he has done, and in view of that and the Company’s circumstances, the Board believes that the fees and commissions are fair and reasonable and in the interests of the Company and its shareholders as a whole.

Using its existing authority to allot and issue Ordinary Shares, the Company has agreed to issue 1,250,000 Ordinary Shares (subject to admission to trading on AIM) at an issue price of 3.75 pence per share to a third party creditor in settlement of fees owed to it in respect of its services to the Company. Application will be made to the London Stock Exchange for these new Ordinary Shares to be admitted to trading on AIM and it is expected that dealings in these shares will commence on or around 10 December 2014.

This issue of 6,666,667 new Ordinary Shares to Amit Ben-Haim (“Fee Shares”), representing 4.14% of the Company’s share capital as enlarged by that issue, is subject to shareholder approval of Resolution 3 at the EGM.

Dilution

The table below sets out the Company’s current issued share capital and the maximum dilutive effect of (i) the exercise of all options and warrants outstanding; and (ii) the completion of each of the arrangements described in the circular published today, including the conversion of £800,000 of Loan Notes at the Company’s election, the exercise of the Warrant Shares, the issue of the Fee Shares and the issue of the maximum number of new Ordinary Shares in connection with the Additional Fundraising (at 3.75p per share):

Event

Ordinary Shares

Current issued share capital

154,437,500

Outstanding options and warrants at the date of this document

6,750,000

Conversion of £800,000 of Loan Notes at the Company’s election

32,000,000

Warrant Shares

22,000,000

Fee Shares and shares to be issued to a third party creditor

7,916,667

Maximum number of Ordinary Shares to be issued in connection with the Additional Fundraising

80,000,000

Maximum possible fully diluted share capital

303,104,167

Maximum dilutive effect

96.26%

Extraordinary General Meeting

A notice of EGM has been sent to shareholders convening the EGM to be held at the offices of Fladgate LLP at 16 Great Queen Street, London WC2B 5DG at 11.00 a.m. on 23 December 2014, at which the following resolutions (“Resolutions”) will be proposed:

(Resolution 1) to approve the disapplication of pre-emption rights in the Company’s articles of association in connection with the issue of equity securities, upon and subject to the conversion of the Loan Notes, up to an aggregate nominal value of £60,000;

(Resolution 2) to approve the disapplication of pre-emption rights in connection with the further issue of equity securities up to an aggregate nominal value of £80,000 in respect of the Additional Fundraising; and

(Resolution 3) to approve the disapplication of pre-emption rights in connection with the issue of the Fee Shares and the Warrant Shares.

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